Cryptocurrency and Bitcoin: How you can earn money from Bitcoin?

From last one year, people are ready to pay big money to buy bitcoins, but very few tried to get the mechanism behind. Bitcoin is a Cryptocurrency which allow user to buy good without showing any identity proof. The word cryptocurrency can be broken into Crypto plus Currency. Crypto is an English word, which means ‘Hidden’ whereas currency has its usual meaning. Let’s take an example to understand the concept.

Suppose Manish gives John 5 dollar for a burger, we record that transaction, and now the ledger shows that Manish has 5 fewer dollars and John has 5 more dollar. Interestingly, ledger is silent regarding the burger. Here dollar can be replaced by bitcoin and the word 'silent' is an important feature of a Cryptocurrency.

Now we have following concept flowing from the above example.

1.       What is bitcoin?

2.       Where is the ledger stored?

3.       Who maintain this ledger?

1-)

Bitcoin is a digital currency invented by an unknown programmer, under the name Satoshi Nakomoto. It is not tied to a bank or a Govt, no single institution governs the bitcoin network. It is like an online version of cash, where you can use it to buy product and services. In India it’s not in much use, but in America you may find even shops that are willing to accept bitcoins instead of money.

2-)

The record of all transition made by using bitcoin is stored in an online public ledger, which can be accessed by anyone. But the accessibility is restricted. As we saw in the case of Manish, John and a burger, ledger can only record the senders Cryptography (i.e. the unique address of the sender, which is generated by a well defined Crypto algorithm and in same sense that of the receivers too) and the bitcoins exchanged. No other information is shared i.e. there is no record of what you purchased. The size of the Bitcoin blockchain has been growing since the creation of the Bitcoin virtual currency in 2009, reaching approximately 149 gigabytes in size in December 2017 i.e. 149 GB space is occupied only to maintain record of few text letters.

3-)

Maintaining ledger was a big task. It’s not the first time the world is working to get a digital currency in the market. Earlier too, some programmers made few attempt, but none of them was able decentralized the digital currency. This drawback was accomplished by Satoshi Nakomoto. He introduced a new concept called Bitcoin mining. Users willing to devote CPU power to run a special piece of software are called miners and the work they do is called Bitcoin mining. A miner simply handles ledger and the related issues. Interestingly, those who do mining are rewarded with more bitcoin as a result bitcoin mining has become a career option for many. If you successfully mined a bitcoin block, you could get yourself behind an Audi A4 every 10 minutes.

Suppose in a mechanics shop, there are two mechanics, a man came with a problem in his car and asked to fix it, but the condition is, the one who repair first, will be paid higher as compared to the one who finished second. This is how miners are rewarded with bitcoins.

Basically they install a software of bitcoin in their CPU and that software solve complex mathematical problems using CPU power( generally this task requires high power rated CPU’s, which costs around 5,00,000 INR). The software thus, provides an algorithm to the ledger that helps the software to take smart decision.